Gujarat High Court
Ravani Medical Store vs Union Of India & 3 on 11 March, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, Z.K.Saiyed
C/SCA/18050/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 18050 of 2015
With
SPECIAL CIVIL APPLICATION NO. 18051 of 2015
With
SPECIAL CIVIL APPLICATION NO. 18052 of 2015
With
SPECIAL CIVIL APPLICATION NO. 18053 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of No
the judgment ?
4 Whether this case involves a substantial question of No
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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RAVANI MEDICAL STORE....Petitioner(s)
Versus
UNION OF INDIA & 3....Respondent(s)
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Appearance:
MR SATYAM Y CHHAYA, ADVOCATE for the Petitioner(s) No. 1
DS AFF.NOT FILED (N) for the Respondent(s) No. 1 - 2 , 4
MR NIRAL R MEHTA, ADVOCATE for the Respondent(s) No. 3
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C/SCA/18050/2015 JUDGMENT
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE Z.K.SAIYED
Date : 11/03/2016
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These petitions arise in common background. We may, therefore, record facts as stated in Special Civil Application No.18050 of 2015.
2. The petitioner is a proprietary concern. The petitioner was awarded the contract for supplying drugs and medicines to the Central Government Health Scheme (CGHS for short) in response to the tenders invited by the said authority for such purpose. The petitioner had, accordingly, supplied the specified drugs during the period between 5.9.2011 to 3.12.2014 when the contract quantity was exhausted. At the relevant time, the petitioner raised the bills for such supply and was also paid accordingly. There is no dispute about either short supply or of the inferior quality of the medicines and drugs supplied by the petitioner.
3. The CGHS floated new tenders on 4.7.2014. The petitioner applied once again for the said tender and was awarded the contract on 18.11.2014 for supplying specified drugs and medicines for Navrangpura area of the city of Ahmedabad for a period of one year. In the course of supplying such drugs under the new contract, the CGHS started making deductions from the current bills of the petitioner towards the Page 2 of 8 HC-NIC Page 2 of 8 Created On Wed Mar 16 01:23:37 IST 2016 C/SCA/18050/2015 JUDGMENT alleged over-payments for the supplies of drugs and medicines under the old contract. The chart Annexure-I supplied by the CGHS to the petitioner gives a breakup of alleged over- payments during a certain period. According to the CGHS, such event of over-payment occurred on account of misinterpretation and consequential miscalculation of the petitioner's entitlement of reimbursements for the medicines and drugs supplied under the said contract. The entire issue revolves around the correct interpretation of pricing clause contained in the tender notice. We would refer to this pricing clause at a slightly later stage. At this stage, we may briefly record that the dispute between the petitioner and the CGHS is whether while calculating the net payable by the CGHS to the petitioner entire Value Added Tax (VAT for short) payable on the product in question should be reduced from the MRP and then the discounted rates offered by the petitioner could be applied or whether the VAT component to be reduced from MRP would be that relatable to only that is borne by the petitioner.
4. The pricing clause contained in the said tender conditions reads as under :
"7. PRICING The bidder should quote uniform discount on retail price printed on Strip / Bottle / Unit packed in percentage term in respect of all items of supplies to be made under the Contract. It should be noted that liability to pay Taxes / VAT/ Levy / Cess/ Octroi etc. leviable under the law would be that of the supplier. CGHS will pay the labelled Page 3 of 8 HC-NIC Page 3 of 8 Created On Wed Mar 16 01:23:37 IST 2016 C/SCA/18050/2015 JUDGMENT MRP minus local taxes less tendered discount thereon. The quoted offer shall remain valid for the entire duration of the contract."
5. This clause, thus, refers to the liability of paying all taxes being on the supplier. It is clarified that the CGHS will pay the labelled MRP minus local taxes less as reduced by tendered discount and such quoted offer would remain constant during the entire duration of the contract. This, in nutshell, is the pricing clause. According to the respondents, the CGHS would pay the MRP minus the entire VAT component embedded in such MRP and on the resultant figure, the percentage of discount offered by the petitioner would be applied to come to the net payable by the CGHS to the petitioner. To demonstrate this, the CGHS under its communication dated 8.7.2014 conveyed to the petitioner as under :-
"With reference to letter dtd. 07.12.2013 of ALC (Copy enclosed for reference) on the above cited subject, the undersigned is directed to convey that following model of calculation for payment of CGHS bills to ALC has been approved by the competent authority :-
Agreed discount = 11.84% and VAT is 5% MRP = Rs.1000.00 Less (VAT 5%) (-) 50.00
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Rs.950.00
Less discount
(11.84% on MRP) Rs.118.40
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Rs.831.60 only. This is payable amount to ALC.
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In other words, the deductible amount from bill is (5+11.84)% of MRP I.e. 16.84% of MRP. This issued with concurrence of IFD vide Dy. No.1543 dated 5.5.2014."
6. It, however, appears that at the relevant time, the petitioner raised the bills on the basis of MRP minus the petitioner's contribution to VAT component less the discount offered. Such bills were passed by the CGHS and payments were also made. This has given rise to what the CGHS refers to as the over-payments and hence, the recoveries.
7. In plain terms, the pricing clause provides for three parameters (i) the MRP, (ii) the local taxes which would be the responsibility of the petitioner and (iii) the discount offered by the tenderer. It provides that the CGHS would pay the labelled MRP minus local taxes less the discount offered. Such formula would remain constant during the entire period of the contract. This clause is open to two interpretations. One approach could be that the literal language used in the clause refers to the liability of CGHS to pay MRP minus local taxes less discount. There is no distinction between the local tax to be borne by the suppliers and the rest. However, the other interpretation equally possible is that the CGHS would pay the MRP less the tax component of the supplier reduced by the offered discount.
8. For multiple reasons, we are inclined to accept the later interpretation. Firstly, if entire clause is read in continuation, the overwhelming intention on the part of CGHS that emerges Page 5 of 8 HC-NIC Page 5 of 8 Created On Wed Mar 16 01:23:37 IST 2016 C/SCA/18050/2015 JUDGMENT is that the liability to bear all taxes would be on the supplier and the CGHS would not be burdened by any of the taxes. The supplier would offer a uniform discount which will operate throughout the period of the contract. It is in this context the clause in the earlier portion refers to the bidder quoting uniform discount on retail price in the percentage terms. It is later on stated that the liability to pay Taxes / VAT/ Levy / Cess/ Octroi etc. would be that of the supplier. In this context, the final formula which the pricing clause provides is that the CGHS will pay the labelled MRP minus local taxes less tendered discount. Thus, the clear intention was to invite offers in which the tenderer would specify the percentage of discount on his margin.
9. It is well-known that the value added tax mechanism works in stages. At each stage, the dealer bears the tax on the margin value of the product upon being sold or traded through a mechanism providing for taking input credit for the past taxes already paid by the earlier dealers. The dealer in question would weigh only that portion of the tax burden which relates to the difference in the value in his hands. Therefore, if the entire value added tax was to be deducted from the MRP for payment after discount, the same would work rather harshly and unreasonably, a result wholly unintended by the pricing clause.
10. For comparison, we may refer to the current pricing clause introduced by the CGHS in later contracts, which reads as under :-
"7. PRICING Page 6 of 8 HC-NIC Page 6 of 8 Created On Wed Mar 16 01:23:37 IST 2016 C/SCA/18050/2015 JUDGMENT The bidder should quote uniform discount in percentage terms on the Maximum Retail Price (MRP) (inclusive of all taxes) printed on the strip/ Bottle/ unit packed, in respect of all items of supplies to be made under the Contract.
The quoted offer shall be on the MRP inclusive of all taxes and shall remain firm and fixed for the entire duration of the contract."
11. This clause now provides that the bidder would have to offer uniform discount in percentage terms on the MRP (inclusive of all taxes). This clause also provides that such offer shall remain constant during the entire duration of the contract. This pricing clause now thus simplifies the computation of the net payable by the CGHS to the supplier. A simple formula of MRP (inclusive of taxes) less discount to be applied. This is not to suggest that the new clause would govern the interpretation of the old clause. This is only to suggest that the formula that works out the net payable by the CGHS to the supplier after discount has been rationalised and simplified in the new pricing clause.
12. Under the circumstances, as long as in the earlier bills raised by the petitioner and cleared and paid by the CGHS, the formula of MRP minus the petitioner's VAT liability less the offered discount on MRP is applied, we see no error or irregularity. The interpretation now adopted by the CGHS in the formula reproduced hereinabove would not flow from the pricing policy.
13. Accordingly, all the petitions are allowed. The recoveries Page 7 of 8 HC-NIC Page 7 of 8 Created On Wed Mar 16 01:23:37 IST 2016 C/SCA/18050/2015 JUDGMENT raised by the respondents for the past bills already paid are quashed. If any amount is already recovered, the same may be refunded. It would, however, be open for the CGHS to verify the VAT paid by the petitioner on such supplies to ascertain that the earlier bills raised and paid were in accordance with the pricing clause as interpreted by us in this order. However, upon completion of such exercise if there is any over-payment it would be open for the CGHS to recover/adjust the same. The petitions are disposed of accordingly.
(AKIL KURESHI, J.) (Z.K.SAIYED, J.) zgs Page 8 of 8 HC-NIC Page 8 of 8 Created On Wed Mar 16 01:23:37 IST 2016